<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended September 30, 1998 Commission File Number
------------------- 0-15261
-------
Bryn Mawr Bank Corporation
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at October 23, 1998
- -----------------------
Common Stock, par value $1 4,297,718
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the nine
months ended September 30, 1998 and 1997........Page 1
Consolidated Statements of Income for the three
months ended September 30, 1998 and 1997........Page 2
Consolidated Balance Sheets as of September 30, 1998,
December 31, 1997 and September 30, 1997........Page 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997........Page 4
Consolidated Statements of Comprehensive Income for
the nine months and three months ended
September 30, 1998 and 1997.....................Page 5
Notes to Consolidated Financial Statements...........Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION..Page 11
PART II - OTHER INFORMATION..............................Page 25
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1997
--------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans............................................. $ 17,563 $ 16,478
Interest on federal funds sold......................................... 522 720
Interest on interest bearing deposits with banks....................... 40 7
Interest and dividends on investment securities:
U.S. Treasury securities.............................................. 552 573
U.S. Government Agency securities..................................... 857 798
Obligations of states and political subdivisions...................... 171 229
Dividend income....................................................... 61 57
--------- ---------
Total interest and dividend income....................................... 19,766 18,862
Interest expense on deposits............................................. 4,549 5,284
--------- ---------
Net interest income...................................................... 15,217 13,578
Loan loss provision...................................................... 87 150
--------- ---------
Net interest income after loan loss provision............................ 15,130 13,428
--------- ---------
Other income:
Fees for Trust services................................................ 6,893 5,675
Service charges on deposits............................................ 863 838
Other service charges, commissions and fees............................ 1,090 800
Net gain on sale of loans.............................................. 564 334
Net gain on sale of other real estate owned............................ 224 95
Other operating income................................................. 1,251 609
--------- ---------
Total other income....................................................... 10,885 8,351
--------- ---------
Other expenses:
Salaries and wages..................................................... 9,266 7,448
Employee benefits...................................................... 1,594 1,366
Occupancy and bank premises............................................ 1,026 1,012
Furniture, fixtures, and equipment..................................... 1,287 1,159
Other operating expenses............................................... 5,071 4,230
--------- ---------
Total other expenses..................................................... 18,244 15,215
--------- ---------
Income before income taxes............................................... 7,771 6,564
Applicable income taxes.................................................. 2,665 2,176
--------- ---------
Net Income............................................................... $ 5,106 $ 4,388
========== ==========
Earnings per common share**.............................................. $1.18 $1.00
Earnings per common share- assuming dilution**........................... $1.12 $0.95
Cash dividends declared**................................................ $0.345 $0.27
--------- ---------
Weighted-average shares outstanding**.................................... 4,335,243 4,398,588
Dilutive potential common shares**....................................... 228,051 197,222
----------- -----------
Adjusted weighted-average shares**....................................... 4,563,294 4,595,810
The accompanying notes are an integral part of the consolidated financial statements.
* Except for share and per share data.
**1997 restated to reflect the 2-for-1 stock split, effective August 3, 1998.
</TABLE>
Form 10-Q
Page 1
<PAGE>
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September 30
1998 1997
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans............................................. $ 6,067 $ 5,640
Interest on federal funds sold......................................... 134 238
Interest on interest bearing deposits with banks....................... 0 1
Interest and dividends on investment securities:
U.S. Treasury securities.............................................. 180 177
U.S. Government Agency Securities..................................... 227 342
Obligations of states and political subdivisions...................... 60 68
Dividend income....................................................... 18 16
----------- -----------
Total interest income.................................................... 6,686 6,482
Interest expense on deposits............................................. 1,507 1,826
----------- -----------
Net interest income...................................................... 5,179 4,656
Loan loss provision...................................................... 37 50
----------- -----------
Net interest income after loan loss provision............................ 5,142 4,606
----------- -----------
Other income:
Fees for Trust services................................................ 2,355 1,913
Service charges on deposits............................................ 295 281
Other service charges, commissions and fees............................ 382 291
Net gain on sale of loans.............................................. 248 163
Net gain on sale of other real estate owned............................ 29 1
Other operating income................................................. 425 209
----------- -----------
Total other income....................................................... 3,734 2,858
----------- -----------
Other expenses:
Salaries and wages..................................................... 3,134 2,582
Employee benefits...................................................... 529 459
Occupancy and bank premises............................................ 361 326
Furniture, fixtures, and equipment..................................... 461 389
Other operating expenses............................................... 1,734 1,397
----------- -----------
Total other expenses..................................................... 6,219 5,153
----------- -----------
Income before income taxes............................................... 2,657 2,311
Applicable income taxes.................................................. 925 771
----------- -----------
Net Income............................................................... $ 1,732 $ 1,540
========== ==========
Earnings per common share**.............................................. $0.40 $0.35
Earnings per common share-assuming dilution**............................ $0.38 $0.34
Cash dividends declared**................................................ $0.115 $0.09
Weighted-average shares outstanding**.................................... 4,330,191 4,382,358
Dilutive potential common shares**....................................... 234,623 214,352
----------- -----------
Adjusted weighted-average shares**....................................... 4,564,814 4,596,710
The accompanying notes are an integral part of the consolidated financial statements.
* Except for share and per share data.
**1997 restated to reflect the 2-for-1 stock split, effective August 3, 1998.
</TABLE>
FORM 10-Q
Page 2
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
(Unaudited) (Unaudited)
-------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks.......................................... $ 18,771 $ 34,464 $ 22,809
Interest bearing deposits with banks............................. 104 2,118 101
Federal funds sold............................................... 10,000 16,600 17,380
Investment securities available-for-sale, at market (amortized
cost of $29,363, $40,573 and $40,557 as of September 30, 1998,
December 31, 1997 and September 30, 1997, respectively)........ 29,599 40,666 40,631
Loans:
Consumer....................................................... 70,612 76,963 79,080
Commercial..................................................... 92,159 75,474 72,449
---------- ---------- ---------
Real Estate.................................................... 121,676 116,121 109,348
Total loans.................................................. 284,447 268,558 260,877
Less: Allowance for possible loan losses....................... (4,103) (4,074) (4,267)
---------- ---------- ---------
Net loans.................................................... 280,344 264,484 256,610
---------- ---------- ---------
Premises and equipment, net...................................... 12,291 11,790 11,561
Accrued interest receivable...................................... 2,032 2,039 2,065
Other real estate owned.......................................... 0 25 1,411
Other assets..................................................... 2,381 2,024 2,341
---------- ---------- ---------
Total assets................................................. $ 355,522 $ 374,210 $ 354,909
========== ========== =========
Liabilities
Deposits:
Demand, noninterest-bearing.................................... $ 84,510 $ 101,188 $ 74,772
Savings........................................................ 160,906 165,739 155,135
Time........................................................... 63,191 61,879 80,930
---------- ---------- ---------
Total deposits............................................... 308,607 328,806 310,837
---------- ---------- ---------
Other liabilities................................................ 5,614 6,055 5,896
---------- ---------- ---------
Total liabilities............................................ 314,221 334,861 316,733
---------- ---------- ---------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000
shares; issued 5,050,678, 2,519,379 and 2,510,585 shares
as of September 30, 1998, December 31, 1997 and September 30, 1997,
respectively and outstanding of 4,304,318, 2,185,609 and
2,181,915 shares as of September 30, 1998, December 31, 1997
and september 30, 1997, respectively........................... 5,050 2,519 2,511
Paid-in capital in excess of par value ......................... 2,312 4,589 4,545
Unrealized investment appreciation
net of deferred income taxes.................................. 155 62 49
Retained earnings................................................ 38,556 34,946 33,598
---------- ---------- ---------
Less: Common stock in treasury at cost -- 746,360, 333,770 and
328,670 shares as of September 30, 1998, December 31, 1997
and september 30, 1997, respectively........................... (4,772) (2,767) (2,527)
---------- ---------- ---------
Total shareholders' equity..................................... 41,301 39,349 38,176
Total liabilities and shareholders' equity..................... $ 355,522 $ 374,210 $ 354,909
========== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 3
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net Income............................................................... $ 5,106 $ 4,388
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses............................................. 87 150
Provision for depreciation and amortization........................... 1,133 869
Provision for writedown of other real estate owned.................... 25 0
Gain on sale of other real estate owned............................... (224) (95)
Loans originated for resale........................................... (103,432) (49,310)
Proceeds from loans sold.............................................. 104,933 48,963
Gain on sale of loans................................................. (564) (334)
Increase (decrease) in deferred income taxes.......................... 92 (67)
Decrease in interest receivable...................................... 7 99
Increase in interest payable.......................................... 153 517
Other................................................................. (1,080) 407
--------- ---------
Net cash provided by operating activities......................... 6,236 5,587
--------- ---------
Investing activities:
Purchases of investment securities....................................... (11,002) (21,995)
Proceeds from maturity and calls of fixed income securities.............. 22,176 16,192
Loan repayments, net of loan originations................................ 3,603 24,356
Loans purchased (dealer loans)........................................... (20,487) (25,190)
Purchases of premises and equipment...................................... (1,456) (1,103)
Proceeds from disposition of other real estate owned..................... 224 207
--------- ---------
Net cash used by investing activities.............................. (6,942) (7,533)
--------- ---------
Financing activities:
Net decrease in demand and savings deposits.............................. (21,511) (14,398)
Net increase in time deposits........................................... 1,312 22,052
Dividends paid........................................................... (1,496) (1,189)
Repayment of mortgage debt............................................... (20) (1,802)
Purchases of treasury stock.............................................. (2,074) 107
Proceeds from issuance of common stock................................... 188 (988)
--------- ---------
Net cash (used) provided by financing activities................... (23,601) 3,782
--------- ---------
(Decrease) increase in cash and cash equivalents......................... (24,307) 1,836
--------- ---------
Cash and cash equivalents at beginning of period......................... 53,182 38,454
--------- ---------
Cash and cash equivalents at end of period............................... $ 28,875 $ 40,290
========= =========
Supplemental cash flow information:
Income taxes paid..................................................... $ 2,748 $ 1,953
Interest paid......................................................... $ 4,396 $ 4,767
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 4
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Period Ended
September 30 September 30
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income.................................... $ 1,732 $ 1,540 $ 5,106 $ 4,388
Other comprehensive income:
Unrealized holding gains (losses) on
available-for-sale securities......... 155 101 143 76
Deferred income tax (benefit) expense on
unrealized holding gains (losses) on
available for sale securities........ 54 34 50 25
--------- --------- --------- ---------
Comprehensive net income........................ $ 1,833 $ 1,607 $ 5,199 $ 4,439
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 5
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of September 30, 1998 and 1997, the consolidated statements of
cash flows for the nine month periods ended September 30, 1998 and 1997 and the
related consolidated statements of income for the nine and three month periods
ended September 30, 1998 and 1997 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of related revenue and expense during the
reporting period. Actual results could differ from those estimates. Management
believes that all adjustments, accruals and elimination entries necessary for
the fair presentation of the consolidated financial position and results of
operations for the interim periods presented have been made. All such
adjustments were of a normal recurring nature. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1997 Annual Report
incorporated in the 1997 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1997 Annual Report
incorporated in the 1997 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the nine and three month
periods ended September 30, 1998 and 1997.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
In January 1997, the Corporation adopted Statement of Financial Accounting
Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities", ("SFAS No. 125"). SFAS No. 125, which was
adopted prospectively, provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
the concept of control. The adoption of SFAS No. 125 did not have a material
impact on the financial position or results of operation of the Corporation.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earning per Share", ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation and
Form 10-Q
Page 6
<PAGE>
disclosure requirements for earnings per share for entities with publicly held
common stock or potential common stock. SFAS No. 128 requires the presentation
of both basic earnings per share and, when not antidilutive, diluted earnings
per share. Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Dilutive earnings per share is computed in a manner similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive common
shares had been issued.
SFAS No. 128 supersedes Accounting Principals Board Opinion No. 15-Earnings
Per Share and is effective for financial statements for both interim and annual
periods ending after December 15, 1997, which means that it is effective for
1998 and subsequent accounting periods. All prior periods have been restated.
In September 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income, such as unrealized holding gains and losses on
available-for-sale investment securities in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation adopted SFAS No. 130 on
January 1, 1998. When first applying SFAS No. 130, financial statements for
earlier periods that are provided for comparative purposes are required to be
restated to reflect application of the provisions of SFAS No. 130. SFAS No. 130
must be adopted at the beginning of a business enterprise's fiscal year.
In September 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS 131 replaces Statement of Financial Accounting Standard
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 requires public business enterprises to report certain information about
their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the
basis that it is used internally by the enterprise's chief operating decision
maker in making decisions related to resource allocation and segment
performance. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Corporation adopted SFAS No. 131 on
January 1, 1998. Comparative year information is required to be restated in
accordance with SFAS No. 131, if practicable. In 1998, the first year of
implementation, SFAS No. 131 is not required to be applied to interim period
financial statements and the Corporation has not done so.
5. Loans:
Interest income on loans performing satisfactorily is recognized on the
accrual method of accounting. Nonperforming loans are loans on which scheduled
principal and/or interest is past due 90 days or more or loans less than 90 days
past due which are deemed to be problem loans by management. All nonperforming
loans, except consumer loans, are placed on nonaccrual status, and any
outstanding interest receivable at the time the loan is deemed nonperforming is
deducted from interest income. The charge-off policy for all loans, including
nonperforming and impaired loans, considers such factors as the type and size of
the loan, the quality of the collateral, and historical creditworthiness of the
borrower in management's assessment of the collectability of such loans.
Form 10-Q
Page 7
<PAGE>
As a part of its internal loan review process, management, when considering
making a loan an impaired loan, considers a number of factors, such as a
borrower's financial strength, the value of related collateral and the ability
to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans include both credit and the risk of
failure to repay a loan and concentration risk. A loan is not considered
impaired if there is merely an insignificant delay or shortfall in the amounts
of payments. An insignificant delay or shortfall is a temporary delay in the
payment process of a loan. However, under these circumstances, the
Corporation's subsidiary The Bryn Mawr Trust Company (the "Bank") expects to
collect all amounts due, including interest accrued at the contractual interest
rate for the period of the delay.
When a borrower is deemed to be unable to meet the original terms of a
loan, the loan is considered impaired. While all impaired loans are not
necessarily considered non-performing loans, if a loan is delinquent for 90 days
or more, it is considered both a nonperforming and impaired loan. All of the
Corporation's impaired loans, which amounted to $2,951,000, $3,524,000 and
$3,874,000 at September 30, 1998, December 31, 1997 and September 30, 1997,
respectively, were put on a nonaccrual status and any outstanding accrued
interest receivable on such loans at the time they were put on nonaccrual
status, was reversed from income.
Impaired loans are required to be measured based upon the present value of
expected future cash flows, discounted at the loan's initial effective interest
rate or at the loan's market price or fair value of the collateral, if the loan
is collateral dependent. As of September 30, 1998 and December 31, 1997, no
impaired loans were measured using the present value of expected future cash
flows because all impaired loans were collateral dependent at these respective
dates. As of September 30, 1997, impaired loans measured using the present
value of future cash flows amounted to $170,000. Impaired loans measured by the
value of the loan's collateral amounted to $2,951,000, $3,524,000, and
$3,704,000, respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. The impairment
reserve is established by either an allocation of the reserve for ,loan losses
or by a provision for loan losses, depending on the adequacy of the reserve for
loan losses. All impairment reserves established in either 1998 or 1997 were
allocated from the existing reserve for loan losses. As of September 30, 1998,
December 31, 1997 and September 30, 1997, there were $2,881,000, $791,000 and
$3,252,000, respectively of impaired loans for which there is a related
allowance for loan losses. The total related allowance for loan loss at
September 30, 1998, December 31, 1997 and September 30, 1997 was $300,000,
$226,000 and $187,000, respectively. Impaired loans for which no loan loss
allowance was allocated amounted to $70,000, $2,733,000 and $622,000 at
September 30, 1998, December 31, 1997 and September 30, 1997, respectively.
Average impaired loans during the first nine months of 1998 and 1997,
respectively, amounted to $3,095,000 and $2,685,000, compared to $2,927,000 for
the twelve months ended December 31, 1997.
When a loan is classified as impaired, it is put on a nonaccrual status and
any income subsequently collected is credited to the outstanding principal
balance. Therefore, no interest income was reported on outstanding loans while
considered impaired during either nine month period ended September 30, 1998 or
1997. Loans may be removed from impaired status and returned to accrual status
when all principal and interest amounts contractually due are reasonably assured
of repayment within an acceptable period of time and there is a sustained period
of repayment performance by the borrower, with a minimum
Form 10-Q
Page 8
<PAGE>
repayment of at least nine months, in accordance with the contractual terms of
interest and principal. Subsequent income recognition would be recorded under
the existing terms of the loan. Based on the above criteria, during the first
nine months of 1997, $409,000 in loan balances were removed from impaired status
and returned to accrual status. During 1998, no loans considered impaired were
removed from the impaired loan status.
Smaller balance, homogeneous loans, exclusively consumer loans, when
included in nonperforming loans, for practical consideration, are not put on a
nonaccrual status nor is the current accrued interest receivable reversed from
income.
6. 2-for-1 Stock Split:
At its July 16, 1998 Board of Directors meeting, the Corporation's Board of
Directors authorized an increase in authorized shares from 5,000,000 shares to
25,000,000 shares. At the same meeting, the Board of Directors declared a 2-
for-1 stock split, to shareholders of record on August 3, 1998, which were
issued on September 1, 1998.
Form 10-Q
Page 9
<PAGE>
7. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
nine months ended year ended
September 30, December 31,
1998 1997 1997
----------------- ------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balance, Beginning of period $4,074 $4,182 $4,182
------ ------ ------
Charge-offs:
Consumer (129) (109) (237)
Commercial and industrial (18) 0 (196)
Real estate (24) (77) (0)
------ ------ ------
Total charge-offs (171) (186) (433)
------ ------ ------
Recoveries:
Consumer 15 16 23
Commercial and industrial 0 99 102
Real estate 98 6 0
------ ------ ------
Total recoveries 113 121 125
------ ------ ------
Net charge-offs (58) (65) (308)
Provision for loan losses 87 150 200
------ ------ ------
Balance, End of period $4,103 $4,267 $4,074
====== ====== ======
</TABLE>
Form 10-Q
Page 10
<PAGE>
ITEM 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations of
Bryn Mawr Bank Corporation and its subsidiaries (the "Corporation") for the nine
and three month periods ended September 30, 1998 and 1997, as well as the
financial condition of the Corporation as of September 30, 1998, December 31,
1997 and September 30, 1997. The Bryn Mawr Trust Company (the "Bank") and Tax
Counsellors of Bryn Mawr, Inc. ("TCBM") are wholly-owned subsidiaries of the
Corporation. During the first quarter of 1998, the Bank formed a wholly-owned
subsidiary, Insurance Counsellors of Bryn Mawr, Inc. ("ICBM") to sell insurance
products to its customers.
RESULTS OF OPERATIONS
- ---------------------
The Corporation reported net income of $5,106,000 for the nine months ended
September 30, 1998, a 16% increase over $4,388,000 reported for the same period
in 1997. During both 1998 and 1997, the Bank reported net gains on the sale of
other real estate owned ("OREO") of $224,000 and $95,000, respectively. During
1998, the Bank also had a recovery of $144,000 in disputed legal fees from a
prior loan settlement (the "Non-recurring Items"). Exclusive of these Non-
recurring Items, in both years, the Corporation's earnings grew by 12% over 1997
earnings. Per share data have been restated to reflect the effect of the 2-for-
1 stock split, paid on September 1, 1998 to shareholders of record on August 3,
1998. Earnings per common share amounted to $1.18, an 18% increase over $1.00
reported for the first nine months of 1997. Earnings per common share, assuming
dilution were $1.12 and $.95, respectively.
For the second quarter of 1998, the Corporation reported net income of
$1,732,000, a 12% increase over $1,540,000 reported for the third quarter of
1997. For the three months ended September 30, 1998 and 1997, earnings per
common share amounted to $.40 and $.35, respectively. Earnings per common
share- assuming dilution amounted to $.38 and $.34, respectively.
Exclusive of the after tax effect of the Non-recurring Items, the increase
in earnings, for the first nine months of 1998 over the same period in 1997 may
be attributed to a number of factors, including an increase in net interest
income, up 12% over the first nine months of 1997, a decrease in the provision
for loan losses, down 42% and an increase of 30% in other income. The increase
in other income was primarily due to a 105% increase in other operating income,
principally the result of fee income generated by TCBM and ICBM, not in 1997's
other operating income. Also increasing were net gains on the sale of loans, up
68%, the result of increased loan sale activity, other service charges,
commissions and fees, up 36% and fees for trust services, up 21%. Other
expenses, exclusive of the Nonrecurring Items, rose 20% for the first nine
months of 1998 compared to the same period in 1997.
Average outstanding loan balances for the first nine months of 1998 grew 6%
from average daily outstanding loan balances for the first nine months of 1997.
Average outstanding investment security balances grew by 3%. The
Form 10-Q
Page 11
<PAGE>
increases in both average loan balances and average investment balances were
partially funded by a 28% decrease in average daily outstanding balances of
federal funds sold and a 1% increase in average daily outstanding deposit
balances. The majority of the growth in average daily outstanding deposits
occurred in transaction based accounts. Average daily outstanding balances of
non-interest bearing demand deposit accounts and NOW accounts were up 10% and
12%, respectively. Due primarily to a 20% decrease in average outstanding CDs
during the first nine months of 1998, compared to the same period of 1997, the
average cost of funds for the respective periods decreased 30 basis points, from
2.3% in 1997 to 2.0% in 1998. The result was an increase in the Bank's
annualized net interest margin, to 6.03% for the first nine months of 1998
compared to 5.55% for the same period in 1997.
The prime rate remained unchanged at 8.5% from September 1997 to September
1998. Since, in the short term, 30 days or less, the Bank is asset rate
sensitive, a rising prime rate usually will cause a related increase in interest
income. While the Bank's prime rate did not change during the most recent
twelve month period, a 6% increase in average outstanding loan balances was
primarily responsible for a 10 basis point increase in the yield on earning
assets for the first nine months of 1998, to 7.9% compared to 7.8% for the same
period in 1997. While interest rate movements and their effect on future
revenue streams cannot be predicted, management believes that there are
presently no known trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the Corporation's liquidity,
capital resources or results of operations in the future.
NET INTEREST INCOME
- -------------------
For the nine months ended September 30, 1998, net interest income rose 12%
to $15,217,000 from $13,578,000 in 1997. Total interest income grew 5% for the
first nine months of 1998, to $19,766,000 from $18,862,000 for the first nine
months of 1997. Interest expense decreased 14% for the nine months ended
September 30, 1998, to $4,549,000 compared to $5,284,000 for the first nine
months of 1997. The yield on earning assets for the first nine months of 1998
was 7.9% compared to 7.8% for the first nine months of 1997 while the effective
rate paid on interest bearing deposits for the first nine months of 1998 and
1997 was 2.6% and 3.0%, respectively.
Interest and fees on loans increased 7% from $16,478,000 for the first nine
months of 1997 to $17,563,000 for the first nine months of 1998. A 10 basis
point increase in the yield on the loan portfolio, at 8.3% for the first nine
months of 1998, compared to 8.2% for the same period in 1997, combined with a 6%
increase in average outstanding loan balances from $258,607,000 for the first
nine months of 1997 to $273,170,000 for the same period in 1998, are the primary
reasons for this increase in loan related interest and fee income.
Interest income on investments decreased $16,000 or 1%, from $1,657,000 for
the first nine months of 1997 to $1,641,000 for the first nine months of 1998.
Interest from U.S. Treasury securities decreased 4% from $573,000 for the first
nine months of 1997 to $552,000 for the first nine months of 1998. The primary
reason for this decrease was a $263,000 or 2% decrease in the average balance of
U.S. Treasury securities, from $12,978,000 during the first nine months of 1997
to $12,715,000 for the comparable period in 1998. The decrease in U.S. Treasury
security balances was a result of investment
Form 10-Q
Page 12
<PAGE>
maturities rather than sales. Interest income on U.S. Government Agency
securities increased 7% from $798,000 for the nine months ended September 30,
1997 to $857,000 at September 30, 1998. A 9% increase in the average balance of
U.S. Government Agency securities, from $17,080,000 for the nine months ended
September 30, 1997 to $18,681,000 for the same period in 1998, is primarily
responsible for the related increase in interest income. Interest income on
obligations of states and political subdivisions decreased by 25%, from $229,000
for the nine months ended September 30, 1997 to $171,000 for the same period in
1998. A decrease of $1,284,000 or 20% in average outstanding balances of
obligations of state and political subdivisions, from $6,294,000 in average
outstanding balances for the first nine months of 1997 down to $5,010,000 for
the same period in 1998 is the primary reason for this decrease. The overall
yield on investment securities was 5.8% for the first nine months of 1998,
compared to 5.9% for the same period in 1997.
Interest expense on deposits decreased 14% or $735,000, to $4,549,000 for
the nine months ended September 30, 1998 compared to $5,284,000 for the same
period in 1997. The average cost of interest bearing deposits decreased 40
basis points, from 3.0% at September 30, 1997 to 2.6% for the nine months ended
September 30, 1998. The average interest bearing deposit balances decreased 2%
to $228,644,000 at September 30, 1998 compared to $233,717,000 for the same
period in 1997. The average deposit mix changed for the first nine months of
1998 compared to the same period in 1997. Average non-transaction savings
accounts increased 4%, while average Market Rate Accounts decreased 2%. The
Bank's average transaction based NOW account and non-interest bearing demand
deposit account balances increased 12% and 10% respectively. During the first
quarter of 1995, the Bank offered a new one and two year Premier CD, at highly
competitive rates of interest. The one year Premier CDs matured during the
first quarter of 1996 and were not renewed. The two year Premier CDs matured
during the first quarter of 1997 and a CD promotion, offering a 50 basis point
premium over the then current market rate of interest for a nine month CD was
offered. These CD balances matured during the fourth quarter of 1997. A
similar promotion was not offered at that time. As a result of this run off of
Premier CD funds in the final quarter of 1997, the average daily outstanding
balances of time deposits decreased 20% for the first nine months of 1998,
compared to 1997. The annualized cost of CDs decreased 30 basis points, from
5.3% for the first nine months of 1997 to 5.0% for the same period in 1998. The
average cost of both savings and NOW account balances each decreased by 10 basis
points and 20 basis points, respectively for the first nine months of 1998
compared to the first nine months of 1997. The average cost of Market Rate
Accounts remained unchanged during the nine month period. The result was a 40
basis point decrease in the average cost of interest bearing deposits, from 3.0%
in 1997 to 2.6% for the first nine months of 1998. The average cost of
deposits, including non-interest bearing demand deposits decreased from 2.3% for
1997, to 2.0% for the first nine months of 1998.
For the first nine months of 1998, the net interest margin increased to
6.03% from 5.55% for same period in 1997. The net interest margin is computed
exclusive of related loan fee income.
For the third quarter of 1998, net interest income of $5,179,000 was 11%
ahead of $4,656,000, reported for the third quarter of 1997. Total interest
income increased $204,000 or 3% from $6,484,000 for the third quarter of 1997 to
$6,686,000 for the same period in 1998. Interest and fees on loans
Form 10-Q
Page 13
<PAGE>
increased $427,000 or 8% for the third quarter of 1998 over the third quarter of
1997. Interest on federal funds sold, reflecting a decrease in average daily
outstanding balances, decreased $104,000 or 44%, reflecting both an increase in
average daily outstanding loan balances and the runoff of higher costing CDs in
the fourth quarter of 1997. Interest income on U.S. Government Agency
Obligations decreased $115,000 or 34%, while interest on obligations of states
and political subdivisions decreased by $8,000 or 12%. Interest on deposits
decreased $262,000 or 15%, due primarily to the decrease in average daily
outstanding CD balances, the effect of the maturity of higher costing CDs in the
fourth quarter of 1997.
LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. The Bank maintains an Officer Loan Review
Committee (the "Committee") and retains the services of an independent loan
review consultant (the "Consultant"). The Consultant performs an independent
review of the Bank's loan portfolio and the loan loss reserve. The Committee
meets monthly to review the adequacy of the loan loss reserve as well as all
nonaccrual loans, any potential problem loans and loans criticized by either the
Bank's regulators or the Consultant.
Based on ratings assigned by the Committee on the quality of the loans
which are reviewed, a specific reserve may be computed for each loan. In
addition to the specific reserve amounts, the balance of loans not reviewed by
the Committee has a reserve computed based on the average of the prior five
years write-offs plus the annualized write-offs for the current year. Including
annualized write-offs for the current year takes into consideration current
trends in both volumes and write-offs, to be included in the computation.
Finally, an amount equal to .5% of all outstanding loans is included in the loan
loss reserve calculation to address possible unforeseen loan loss reserve
requirements. The sum of the specific reserves, the reserve calculated based on
average write-offs and the reserve calculated based on the entire portfolio for
possible unforeseen loan losses is compared to the Bank's current loan loss
reserve balance. Any additions deemed necessary to the loan loss reserve are
then made on a timely basis.
Based on the results of the aforementioned reviews, the low level of loan
delinquencies, .59% of total loans at September 30, 1998 and the size of the
loan loss reserve, 1.44% of total loans at September 30, 1998, the loan loss
provision was reduced to $87,000 for the nine months ended September 30, 1998,
compared to $150,000 for the same period in 1997. The loan loss reserve
amounted to 1.64% of outstanding loans at September 30, 1997. Nonperforming
loans have decreased 19% to $970,000 as of September 30, 1998, from $1,169,000
as of December 31, 1997 and increased 12% from $867,000 in nonperforming loans
as of September 30, 1997. The loan loss reserve amounted to 423% of
nonperforming loans as of September 30, 1998 compared to 492% as of September
30, 1997. Despite the low level of loan delinquencies during the first nine
months of 1998 and the size of the loan loss reserve, compared to outstanding
loans, the Bank increased the third quarter loan loss provision to $37,000,
compared to $25,000 for each of the first two quarters of 1998 because of
continued growth in the loan portfolio. Based on the results of both the
internal and external loan review processes and the current level of
Form 10-Q
Page 14
<PAGE>
nonperforming loans, management believes the loan loss reserve to be adequate as
of September 30, 1998.
OTHER INCOME
- ------------
Total other income of $10,385,000 for the nine months ended September 30,
1998 increased 30% over $8,351,000 reported for the same period in 1997.
Included in these amounts were increases in net gains on the sale of OREO of
$224,000 and $95,000 for the first nine months of 1998 and 1997, respectively.
Exclusive of these gains, total other income increased by 29% over 1997 levels.
Fees for trust services rose 21% from $5,675,000 for the first nine months
of 1997 to $6,893,000 for the same period in 1998, due primarily to both the
acquisition of new Trust accounts and an increase in the market value of Trust
assets under management over the past twelve months, up by 32%, to
$1,835,826,000 at September 30, 1998 from $1,666,472,000 as of December 31,
1997. A result of the recent volatility in the stock market, the market value
of Trust assets under management decreased $156,945,000 or 8% from a market
value of $1,992,774,000 as of June 30, 1998.
Due primarily to favorable residential mortgage interest rates,encouraging
borrowers to refinance existing higher rate mortgage loans, for the nine month
period ended September 30, 1998, the Bank originated and sold $104,369,000 of
residential mortgage loans in the secondary mortgage market, a 115% increase
over $48,449,000 of residential mortgage loans originated and sold during the
first nine months of 1997. Deferred loan fees earned as income resulting from
the sale of residential mortgage loans in the secondary mortgage market amounted
to $304,000 or 29 basis points earned on the sale of $104,369,000 of residential
mortgage loans in the secondary mortgage market, compared to $228,000 or 47
basis points earned on the sale of $48,449,000 of residential mortgage loans in
the secondary mortgage market during the first nine months of 1997. Related
gains on the same respective sales of residential mortgage loans in the
secondary mortgage market amounted to $563,000 or 54 basis points for the first
nine months of 1998 compared to $287,000 or 59 basis points for the same period
in 1997. The result was a decline in the total basis points earned on the sale
of loans in the secondary mortgage market, from 106 basis points earned on the
sale of $48,449,000 in residential mortgages loans for the first nine months of
1997 to 83 basis points on the sale of $104,369,000 in residential mortgage
loans for the first nine months of 1998.
Income from other service charges, commissions and fees amounted to
$1,090,000 for the first nine months of 1998, a 36% increase from $800,000
reported for the first nine months of 1997. Increased fee income, such as
documentation preparation fees, associated with the increase in residential
mortgage loan sale activity was primarily responsible for this increase in fee
income.
Net gains on the sale of OREO amounted to $224,000 for the first nine
months of 1997, a 136% increase over $95,000 earned during the first nine months
of 1997.
Other operating income increased 105% to $1,251,000 for the first nine
months of 1998, compared to $609,000 for the same period in 1997. Fee income
Form 10-Q
Page 15
<PAGE>
of $504,000 and $61,000, earned by TCBM and ICBM, respectively was the primary
reason for this $642,000 increase in other operating income for the first nine
months of 1998. TCBM began operations during the third quarter of 1997 earning
$8,000 in fee income. ICBM began operation in January 1998.
Total other income increased $876,000 or 31% from $2,858,000 for the third
quarter of 1997 to $3,734,000 for the third quarter of 1998. Trust fees
increased 23% or $442,000, from $1,913,000 for the third quarter of 1997 to
$2,355,000 for the same period in 1998. Net gains on the sale of loans and
other service charges, commissions and fees, both directly related to the
increased volume of residential loan sales in the secondary market, were up 52%
and 31%, respectively. Net gains on sale of loans increased by $85,000 to
$248,000 for the third quarter of 1998 from $163,000 for the third quarter of
1997. Other service charges, commissions and fees increased by $91,000 to
$382,000 for the third quarter of 1998 from $291,000 for the third quarter of
1997. Other operating income increased by $216,000 or 103% from $209,000 for
the third quarter of 1997 to $425,000 for the third quarter of 1998. Income
earned by both TCBM and ICBM, totaling $197,000 for the third quarter of 1998
was primarily responsible for this increase.
OTHER EXPENSES
- --------------
Total other expense increased 20% for the first nine months of 1998 to
$18,244,000 from $15,215,000 for the first nine months of 1997. Salaries and
wages grew $1,818,000 or 24%, from $7,448,000 for the nine months ended
September 30, 1997 to $9,266,000 for the same period in 1998. Of this increase,
$1,183,000 relates to regular salary expense, representing a 19% increase in
regular, part time and overtime salaries during the first nine months of 1998,
compared to 1997. Included in 1998's regular salary expense were salaries for
TCBM and ICBM of $386,000. Both companies had no salary expense during the
first nine months of 1997. The Bank's regular salary expense increased 13% in
the first nine months of 1998, compared to the same period in 1997. Staffing
additions, occurring during the previous twelve month period were primarily
responsible for this increase. Incentive salaries were up $635,000 or 56%, from
$1,139,000 for the nine months ended September 30, 1997 to $1,774,000 for the
same period in 1998. Incentive salaries are primarily related to the increase
in corporate profitability over the previous year's corporate profitability.
Employee benefits expenses increased $228,000 or 17% from $1,366,000 for
the first nine months of 1997 to $1,594,000 for the same period in 1998. The
largest increase in employee benefits expense occurred in the Bank's health and
life insurance premiums, up $109,000 or 20% over 1997's similar expense. This
was primarily due to both increases in the cost of medical and life coverage and
the number of employees provided coverage under the Bank's medical and life
insurance plan. Social security expense increased $78,000 or 16% over similar
expenses for the first nine months of 1997. Fringe benefits costs for TCBM and
ICBM amounted to $39,000 for the first nine months of 1998. There were no such
expenses for the first nine months of 1997.
Occupancy expense increased $14,000 or 1%, from $1,012,000 for the first
nine months of 1997 to $1,026,000 for the first nine months of 1998.
Furniture, fixtures and equipment expense increased $128,000 or 11% from
$1,159,000 for the first nine months of 1997 to $1,287,000 for the same period
Form 10-Q
Page 16
<PAGE>
in 1998. Growth in depreciation expense was the primary reason for this
increase.
Other operating expenses increased $841,000 or 20% over the first nine
months of 1997, from $4,230,000 for the first nine months of 1997 to $5,071,000
for the first nine months of 1998. The largest increase in other operating
expenses occurred in advertising expense, up $223,000 for the first nine months
of 1998, compared to the same period in 1997. Partially offsetting this increase
was a $119,000 decrease in the Corporation's legal expense, primarily the result
of a recovery of $144,000 in disputed legal fees from a prior loan settlement
during the first quarter of 1998. The cost of hiring temporary help and
programming services increased by $37,000, travel, meeting and related meals
expense were up by $63,000, telephone expense, partially related to the
conversion to a new telephone system in 1998, increased $49,000 and the cost of
processing the Bank's merchant credit card activity increased by $45,000. The
cost of processing the merchant credit card activity is offset by fees included
in other income. Appraisal fees, directly related to the level of residential
mortgage loan origination and sale activity, increased $97,000. The Corporation
incurred a charge of $94,000, related to the potential formation of a new
subsidiary. TCBM and ICBM had combined other operating expenses of $71,000,
compared to $5,000 for TCBM in 1997.
For the quarter, total other expenses increased 21% or $1,066,000 to
$6,219,000 for the quarter ended September 30, 1998 from $5,153,000 from the
same quarter in 1997. The majority of this increase occurred in salaries and
wages, up $552,000 or 21%. Of this increase, regular salaries, full time, part
time and overtime increased by $479,000 or 22%. Included in this increase were
the salaries for TCBM and ICBM, which were not incurred during the third quarter
of 1997. These salaries amounted to $165,000. Exclusive of these salary costs,
the Bank's regular salary cost increased by $314,000 or 14% for the third
quarter of 1998, compared to the third quarter of 1997. Salaries - other
increased by $72,000 or 17% for the quarter, reflecting increases in the Bank's
incentive and profitability bonus accruals. Employee benefits costs rose by 15%
or $70,000 reflecting both increased staff in the Bank, as well as staffing
additions at TCBM and ICBM. Other operating expenses increased by $337,000 or
24%, from $1,397,000 for the third quarter of 1997 to $1,734,000 for the third
quarter of 1998.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate for the first nine months of 1998 was
34%, compared to 33% for the first nine months of 1997. A reduction in tax free
income is primarily responsible for the increase in the effective tax rate for
1998, compared to 1997.
FINANCIAL CONDITION
- -------------------
Total assets decreased 5% from $374,210,000 at December 31, 1997 to
$355,522,000 as of September 30, 1998. Total assets were $613,000 ahead of
$354,909,000 as of September 30, 1997.
Outstanding earning assets decreased 1% to $324,150,000 as of September 30,
1998 from $327,942,000 as of December 31, 1997. The Bank's loan portfolio
increased 6%, to $284,447,000 at September 30, 1998 from $268,558,000 as of
December 31, 1997. Outstanding loans increased by 9%, from $260,877,000 as of
Form 10-Q
Page 17
<PAGE>
September 31, 1997. Outstanding consumer loans of $70,612,000 at September 30,
1998 decreased 8% and 11%, respectively, from consumer loan outstanding balances
of $76,963,000 as of December 31, 1997 and $79,080,000 as of September 30, 1997.
Competition from automobile manufacturers for automobile loans and borrowers
refinancing fixed rate home equity loans with lower rate residential mortgage
loans were the primary reasons for the decrease in consumer loan balances from
both December 31, 1997 and September 30, 1997. Outstanding commercial loans at
September 30, 1998 were $92,159,000, a 22% increase from outstanding commercial
loan balances of $75,474,000 at December 31, 1997 and 27% ahead of $72,449,000
at September 30, 1997. Outstanding real estate loans were $121,676,000 at
September 30, 1998, a 5% increase from $116,121,000 in outstanding real estate
loans at December 31, 1997 and an 11% increase over $109,348,000 in outstanding
real estate loans as of September 30, 1997.
The Bank's investment portfolio, having a market value of $29,599,000 at
September 30, 1998, decreased 27% from a market value of $40,666,000 at December
31, 1997 and 27% from $40,631,000 as of September 30, 1997.
The Corporation has chosen to include all of its investment securities in
the available for sale category. Investments in this category are reported at
the current market value with net unrealized gains or losses, net of the
deferred tax effect, being added or deducted from the Corporation's total equity
on the balance sheet. As of September 30, 1998, the investment portfolio had an
unrealized gain of $236,000, compared to an unrealized gain of $93,000 as of
December 31, 1997. The unrealized investment appreciation, net of deferred
income taxes, increased the Corporation's shareholders' equity on the balance
sheet by $155,000 as of September 30, 1998.
Federal funds sold amounted to $10,000,000 as of September 30, 1998, a 40%
and 42% decrease from $16,600,000 as of December 31, 1997 and $17,380,000 as of
September 30, 1997, respectively. The decrease in outstanding federal funds
sold from December 31, 1997 was primarily due to both an increase in outstanding
loans and a decrease in deposits during the first half of 1998. Management
continues to monitor the liquidity requirements of the Bank and believes that it
has the ability to increase its liquidity position through growth of new CDs,
borrowing from the Federal Home Loan Bank of Pittsburgh (the "FHLB") and the
sale of investments, classified as available for sale.
Nonperforming assets amounted to $970,000 at September 30, 1998, a 19%
decrease from $1,194,000 at December 31, 1997 and a 57% decrease from
nonperforming assets of $2,278,000 at September 30, 1997. Nonperforming loans
decreased 17% to $970,000 at September 30, 1998 compared to nonperforming loans
of $1,169,000 at December 31, 1997 and increased 12% from $867,000 as of
September 30, 1997. The remaining OREO balance of $25,000 was charged off
during the second quarter of 1998. Therefore, there was no OREO balance
outstanding as of September 30, 1998, compared to $25,000 as of December 31,
1997 and $1,411,000 as of September 30, 1997.
As of September 30, 1998 and 1997, there were no significant loans
classified for regulatory purposes as loss, doubtful, substandard or special
mention that either (i) represent or result from trends or uncertainties which
management reasonably expects will impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which
Form 10-Q
Page 18
<PAGE>
management is aware of any information, causing management to have serious
doubts as to the borrower's ability to comply with the loan repayment terms.
Total deposits decreased 6% to $308,607,000 as of September 30, 1998 from
$328,806,000 as of December 31, 1997. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 1% to $311,442,000 for the nine month
period ended September 30, 1998 from $308,820,000 for the same period in 1997.
Although the amount of average total deposits remained relatively stable, the
mix of deposits shifted. Average savings balances increased 4% or $1,706,000 to
$40,504,000 for the first nine months of 1998, compared to $38,798,000 for the
same period in 1997. Market Rate Account balances decreased 2% or $761,000 from
$45,380,000 in average daily outstanding balances for the nine months ended
September 30, 1997 to $44,619,000 for the same period in 1998. The Bank's
transaction based NOW Account and non-interest bearing demand deposit accounts
both grew over the first nine months of 1997 average balances. Average
outstanding NOW account balances grew 12% or $8,962,000, from $73,693,000 for
the first nine months of 1997 to $82,655,000 for the same period in 1998. Non-
interest bearing demand deposit average outstanding balances grew 10% or
$7,695,000 from $75,103,000 for the nine months ended September 30, 1997 to
$82,798,000 for the same period in 1998.
The two year Premier CDs, offered during the first quarter of 1995, matured
during the first quarter of 1997. During the first quarter of 1995, the Bank
offered a new one and two year Premier CD, at highly competitive rates of
interest. The one year Premier CDs matured during the first quarter of 1996 and
were not renewed. The two year Premier CDs matured during the first quarter of
1997 and a CD promotion, offering a 50 basis point premium over the then current
market rate of interest for a nine month CD was offered. These CD balances
matured during the fourth quarter of 1997. A similar promotion was not offered
at that time. As a result of this run off of Premier CD funds in the final
quarter of 1997, the average daily outstanding balances of time deposits
decreased 20% for the first nine months of 1998 compared to 1997. The net
result was a decrease in the average outstanding CD balances, by $15,004,000
from $75,846,000 in average outstanding balances for the first nine months of
1997 to $60,842,000 for the same period in 1998.
LIQUIDITY, INTEREST RATE SENSITIVITY
- ------------------------------------
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management has developed
a revised liquidity measure, incorporating its ability to borrow from the FHLB
to meet liquidity needs and goals. Periodically, the Asset / Liability
Committee of the Bank reviews the Bank's liquidity needs and reports its
findings to the Risk Management Committee of the Bank's Board of Directors.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
Form 10-Q
Page 19
<PAGE>
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of
September 30, 1998, based on the results from the simulation models, the amount
of the Bank's interest rate risk was within the acceptable range as established
by the Policy.
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders equity of the Corporation was $41,301,000,
or 11.6% of total assets, as of September 30, 1998, compared to total
shareholders equity of $39,349,000, or 10.5% of total assets, as of December 31,
1997. As of September 30, 1997, shareholders' equity was $38,176,000, or 10.8%
of total assets. The Corporation's risk weighted Tier I capital ratio was
13.33% as of September 30, 1998 compared to 13.62% and 13.65% at December 31,
1997 and September 30, 1997, respectively. The respective Tier II ratios were
14.58%, 14.87% and 14.91%, respectively. At its July 16, 1998 Board of
Directors meeting, the Corporation's Board of Directors declared a 2-for-1 stock
split, to shareholders of record on August 3, 1998, issued on September 1, 1998.
Earnings per share and dividend per share data have been restated to reflect the
effect of the 2-for-1 stock split. During the first nine months of 1998, the
Corporation declared its regular dividends of $0.345 per share, a 28% increase
over $0.27 per share declared during the first half of 1997.
In March 1997, the Corporation implemented a stock repurchase program with
a goal of repurchasing up to 5% of the then outstanding stock of the
Corporation. This one-year program was renewed in March of 1998 for an
additional year. As of September 30, 1998, the Corporation repurchased,
reflecting the effect of the 2-for-1 stock split, 144,800 shares of its stock at
a cost of $3,302,000.
YEAR 2000
- ---------
The Year 2000 Problem
The Year 2000 ("Y2K") problem is the result of potential problems with
software and computer systems or any equipment with computer chips (collectively
the "Systems") that store the year portion of the date as just two digits (e.g.
98 for 1998). Systems using this two digit approach will not be able to
determine whether "00" represents the year 2000 or 1900. The problem, if not
corrected, may make those systems fail altogether or, even worse, allow them to
generate incorrect calculations causing a disruption of normal computer and
related systems.
Readiness Efforts
The Corporation began its process of assuring that all its Systems and
applications are Y2K compliant in November 1996. In 1997, a comprehensive
project plan to address the Y2K problem and related issues, as those relate to
Form 10-Q
Page 20
<PAGE>
the Bank's and its affiliates operations, was developed, approved by the Board
of Directors and implemented. The Bank, as the primary operating subsidiary of
the Corporation and its subsidiaries, is addressing the Y2K issues for the
Corporation and all of its subsidiaries. The scope of the plan includes five
phases. They are as follows: Awareness, Assessment, Renovation, Validation and
Implementation, as defined by the Federal Financial Institutions Examination
Council and the banking regulatory agencies which regulate the Corporation and
the Bank.
A project team, consisting of key members of the Bank's technology staff,
representatives of functional business units and senior management (the "Team")
was created. Additionally, the duties of the Senior Vice President-Information
Services were realigned to serve primarily as the Y2K project manager.
The assessment of the impact of the Y2K issues on the Bank's computer
systems has been completed. The scope of the project also includes other
operational and environmental systems, since they may be impacted if embedded
computer chips control the functionality of those Systems. From the assessment,
the Bank has identified and prioritized those Systems deemed to be mission
critical or those that have a significant impact on normal operations.
The Bank relies on third party vendors and service providers for its data
processing capabilities and to maintain its computer systems. Formal
communications with those providers of data processing capabilities and other
external counterparties were initiated in 1997 and continued in 1998 to assess
the Y2K readiness of their products and services. Their progress in meeting
their targeted schedules is being monitored for any indication that they may not
be able to address their Y2K problems in a timely fashion. Thus far, responses
indicate that most of the significant providers currently have compliant
versions available or are well into the renovation and testing phases with
completion scheduled for not later than March 31, 1999. However, the Bank can
give no guarantee that the systems of these service providers and vendors on
which the Bank's Systems rely will be timely renovated. The Team will continue
to monitor the progress of third party providers in their efforts to become Y2K
compliant.
Additionally, the Bank has designed a plan to identify the potential risk
posed by the impact of Y2K issues on its significant deposit customers. The
Bank has also designed and partially implemented a plan to identify the
potential risk posed by the impact of Y2K issues on its significant borrowing
customers. Formal communications have been initiated and initial findings, as
of September 30, 1998, reported to the Board of Directors.
The Bank has employed an outside consultant to review its Y2K project. The
consultant is in the process of completing this review.
Current Status
The Team estimates that the Bank's Y2K readiness project is 79% complete and
that the activities involved in assessing external risks and operational issues
are 65% complete overall.
Form 10-Q
Page 21
<PAGE>
The following table provides a summary of the current status of the five
phases involved and a projected timetable for completion.
<TABLE>
<CAPTION>
Project Phase % Completed Projected Completion Comments
- ------------- ----------- -------------------- --------
<S> <C> <C> <C>
Awareness 100% Completed
Assessment 100% Completed
Renovation 70% Dec. 31, 1998 On Schedule
Validation 50% March 31, 1999 Refer to Note (1)
Implementation 75% June 30, 1999 Refer to Note (1)
Overall Completion 79%
</TABLE>
Note (1)- Both the Validation and Implementation phases are on schedule. Much
of the updating of the Systems required for Y2K purposes has been completed
prior to the validation process being finished. This is necessary to properly
accomplish the validation process. This is the reason that the Validation phase
is 50% complete, compared to a 75% completion for the Implementation phase.
Costs
The Bank has thus far primarily used and expects to continue to use
internal resources to implement its readiness plan and to upgrade or replace the
Systems affected by the Y2K issue. The total cost to the Bank of these Y2K
compliance activities has not been and is not anticipated to be material to its
financial position or results of operations in any given year. The Bank
anticipates funding the costs of becoming Y2K compliant out if its earnings
streams. Purchased hardware and software will be capitalized and depreciated in
accordance with Bank policy. Other costs related to the project will be
expensed as incurred. The Bank does not anticipate having to reduce or
eliminate any of its existing hardware / software budgeted Systems spending
because of the projected increase in Y2K Systems spending.
There are no significant liabilities that have arisen because of the Y2K
process. To management's knowledge, all Y2K related liabilities have been
recorded on the Bank's books in a timely manner. The Bank is evaluating the
adequacy of its loan loss reserve, as it relates to potential risk posed by the
lack of Y2K readiness of its significant borrowing customers. Bank management
currently believes that the loan loss reserve is sufficient to cover the
potential needs of both Y2K and non-Y2K loan loss activity. Bank management
will monitor the loan loss reserve, as it relates to Y2K matters on an ongoing
basis.
A detailed analysis of costs incurred from both 1997 and 1998 in
conjunction with Y2K is being maintained in the Bank's information services
area. Based on a review of this analysis and a discussion with the appropriate
Bank officers, it was determined that the following are the most significant Y2K
cumulative expenditures to date, along with a projection of potential
expenditures, necessary to complete the Y2K compliance requirements.
Form 10-Q
Page 22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
New Hardware / Software replacement $222,000
AS/400 for Y2K testing 33,000
Modifications to existing systems 29,000
Other Y2K costs to date 46,000
--------
Total expended to date 330,000
Anticipated additional costs (1) 70,000
--------
Total projected Y2K costs $400,000
========
</TABLE>
(1)- Primarily payroll related costs for overtime and an additional staff
person to assist with the Y2K project.
The costs and the timetable in which the Bank plans to complete the Y2K
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Bank can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
Risk Assessment
Based upon current information related to the process of its major vendors
and service providers, management has determined that the Y2K issues will not
pose significant operational problems for its Systems. This determination is
based on the ability of those vendors and service providers to renovate, in a
timely manner, the products and services on which the Bank's Systems rely.
However, the Bank can give no guarantee that the systems of these suppliers will
be timely renovated.
The potential worst case scenario, relating to a Y2K problem, would be if
either the Bank's, not including the Bank's Trust Division, or the Trust
Division's mission critical vendors supporting both data processing Systems were
determined, through testing, not to be Y2K compliant.
The Bank has an alternative processing vendor that it could contract with
to provide the similar service. The alternative vendor is presently the vendor
for the Trust Division's data processing system. Through the process described
previously, it has been determined that this vendor should be Y2K compliant.
Should the Bank's existing vendor not become Y2K compliant, the alternative
vendor would be contacted and a conversion to this alternative system would be
initiated in a timely manner to assure the Bank's management that the conversion
would be complete prior to December 31, 1999.
Should the Trust Division's vendor not be Y2K compliant, a back up third
party trust service provider has been contacted regarding the handling of the
Trust Division's data processing needs through December 31, 1999 or until the
current vendor would become Y2K compliant.
Bank management believes, based on data obtained from both mission critical
vendors, that both will be Y2K compliant within the required time frame.
Form 10-Q
Page 23
<PAGE>
Contingency Plan- Y2K
Realizing that some disruption may occur despite its best efforts, because
of the Y2K issue,, the Bank is in the process of updating contingency plans for
each critical system, in the event one of those systems fails. While this is an
ongoing process with respect to Y2K, it is intended that a proposal for the
contingency planning process will be presented to the Executive Committee of the
Bank's Board of Directors in December 1998 and that the contingency plan will be
substantially implemented by March 31, 1999.
Form 10-Q
Page 24
<PAGE>
PART II. OTHER INFORMATION
--------------------------
SEPTEMBER 30, 1998
ITEM 1. LEGAL PROCEEDINGS
- --------
NONE
ITEM 2. CHANGES IN SECURITIES
- --------
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- --------
NONE
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- --------
NONE
ITEM 5. OTHER INFORMATION
- --------
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------
NONE
Form 10-Q
Page 25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bryn Mawr Bank Corporation
Date: October 30, 1998 By:/s/ Robert L. Stevens
----------------------- -----------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: October 30, 1998 By:/s/ Joseph W. Rebl
------------------------ ----------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 18,771 0
<INT-BEARING-DEPOSITS> 104 0
<FED-FUNDS-SOLD> 10,000 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 29,599 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 284,447 0
<ALLOWANCE> 4,103 0
<TOTAL-ASSETS> 355,522 0
<DEPOSITS> 308,607 0
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 5,614 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,050 0
<OTHER-SE> 36,251 0
<TOTAL-LIABILITIES-AND-EQUITY> 355,522 0
<INTEREST-LOAN> 17,563 6,067
<INTEREST-INVEST> 1,641 485
<INTEREST-OTHER> 562 134
<INTEREST-TOTAL> 19,766 6,686
<INTEREST-DEPOSIT> 4,549 1,507
<INTEREST-EXPENSE> 4,549 1,507
<INTEREST-INCOME-NET> 15,217 5,179
<LOAN-LOSSES> 87 37
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 18,244 6,219
<INCOME-PRETAX> 7,771 2,657
<INCOME-PRE-EXTRAORDINARY> 7,771 2,657
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,106 1,732
<EPS-PRIMARY> 1.18 .40
<EPS-DILUTED> 1.12 .38
<YIELD-ACTUAL> 6.03 0
<LOANS-NON> 970 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,074 0
<CHARGE-OFFS> 171 0
<RECOVERIES> 113 0
<ALLOWANCE-CLOSE> 4,103 0
<ALLOWANCE-DOMESTIC> 2,170 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,933 0
</TABLE>
